Gavin Kelly: Think the cuts are biting? The pain has hardly begun

Analysis: The most politically dangerous cut will kick in in 2013 - the abolition of child benefit for higher-rate taxpayers

Share
Related Topics

Buoyed by a run of bank holidays and balmy weather, optimistic families may think that, having absorbed the changes announced in April's Budget, the worst is behind them. Sadly, that is a false hope. Plenty more pain is in the pipeline.

To see why, just look at what is coming in terms of cuts, wages, and interest rates. The cuts that kicked in on "Worse-off Wednesday" accounted for a mere 10 per cent of the total savings arising before 2015 from changes to tax credits and child benefit. The pain is "back-loaded"; over 40 per cent of these cuts kick in in 2013.

For many, the biggest threat to living standards does not arise from what George Osborne has done but from the impact of higher prices and stagnant wages. This is not a new problem – disposable income has been falling in every region outside London since 2003 – but it is a worsening one. The current wage squeeze is expected to continue until at least 2013, when average real wages are expected to fall to under £25,000, over £1,800 lower than in 2009.

Add to this the anticipated rises in interest rates and mortgage payments – the one area of respite over the last few years – and things get bleaker. The Bank of England expects interest rates to climb towards 3 per cent in 2013, piling pressure on the 59 per cent of low-to-middle-income households that already struggle to pay their bills.

And it is in 2013, just at the moment of peak pain, when the most politically dangerous cut will kick in: the abolition of child benefit for higher-rate taxpayers. Few tears will be shed on behalf of the genuinely affluent. But, because the change is blunt, it will cost many middle-income single-earner families thousands of pounds, including some struggling on below-average household incomes.

The political reaction to this will be magnified if 2013 is also when the 50p tax rate on the richest 1 per cent of earners is abolished. Whatever your views on the 50p rate, it is an understatement to say that twinning this announcement with cuts to child benefit will prove politically hazardous for the Coalition.

If Mr Osborne is the political operator he is often billed as, don't be surprised if he finds spare cash to allow him to revise plans for child benefit, thereby ensuring that a crucial group of middle-income voters avoids a further major hit to household incomes this side of the next election.

Gavin Kelly is chief executive of the Resolution Foundation.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Senior Solution Architect - Contract

£500 - £600 per day: Recruitment Genius: A Senior Solution Architect is requir...

360 Resourcing Solutions: Export Sales Coordinator

£18k - 20k per year: 360 Resourcing Solutions: ROLE: Export Sales Coordinato...

Recruitment Genius: B2B Telesales Executive - OTE £35,000+

£20000 - £35000 per annum: Recruitment Genius: The largest developer of mobile...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Day In a Page

Read Next
The old 1,000 Greek drachma notes and current 20 euros  

Greece debt crisis: History shows 'new drachma' is nothing to fear

Ben Chu
David Cameron leaves Number 10 to speak at Parliament  

Tunisia attack: To prevent more bloodshed we must accept that containment has not worked

Patrick Cockburn
How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map
Lionel, Patti, Burt and The Who rock Glasto

Lionel, Patti, Burt and The Who rock Glasto

This was the year of 24-carat Golden Oldies
Paris Fashion Week

Paris Fashion Week

Thom Browne's scarecrows offer a rare beacon in commercial offerings
A year of the caliphate:

Isis, a year of the caliphate

Who can defeat the so-called 'Islamic State' – and how?
Marks and Spencer: Can a new team of designers put the spark back into the high-street brand?

Marks and Spencer

Can a new team of designers put the spark back into the high-street brand?
'We haven't invaded France': Italy's Prime Minister 'reclaims' Europe's highest peak

'We haven't invaded France'

Italy's Prime Minister 'reclaims' Europe's highest peak
Isis in Kobani: Why we ignore the worst of the massacres

Why do we ignore the worst of the massacres?

The West’s determination not to offend its Sunni allies helps Isis and puts us all at risk, says Patrick Cockburn
7/7 bombings 10 years on: Four emergency workers who saved lives recall the shocking day that 52 people were killed

Remembering 7/7 ten years on

Four emergency workers recall their memories of that day – and reveal how it's affected them ever since
Humans: Are the scientists developing robots in danger of replicating the hit Channel 4 drama?

They’re here to help

We want robots to do our drudge work, and to look enough like us for comfort. But are the scientists developing artificial intelligence in danger of replicating the TV drama Humans?
Time to lay these myths about the Deep South to rest

Time to lay these myths about the Deep South to rest

'Heritage' is a loaded word in the Dixie, but the Charleston killings show how dangerous it is to cling to a deadly past, says Rupert Cornwell
What exactly does 'one' mean? Court of Appeal passes judgement on thorny mathematical issue

What exactly does 'one' mean?

Court of Appeal passes judgement on thorny mathematical issue